Project Risk Management from the bottom-up: Activity Risk Index

TL;DR

This paper introduces the Activity Risk Index (ARI), a novel normalized metric based on schedule risk baseline, to identify activities that most influence project uncertainty during execution.

Contribution

The paper proposes the ARI, a new activity risk metric that dynamically measures each activity's contribution to overall project risk, unlike existing static sensitivity indices.

Findings

ARI provides real-time risk contribution insights.

ARI is normalized with a total sum of 100%.

ARI outperforms traditional sensitivity metrics.

Abstract

Project managers need to manage risks throughout the project lifecycle and, thus, need to know how changes in activity durations influence project duration and risk. We propose a new indicator (the Activity Risk Index, ARI) that measures the contribution of each activity to the total project risk while it is underway. In particular, the indicator informs us about what activities contribute the most to the project's uncertainty so that project managers can pay closer attention to the performance of these activities. The main difference between our indicator and other activity sensitivity metrics in the literature (e.g. cruciality, criticality, significance, or schedule sensitivity indices) is that our indicator is based on the Schedule Risk Baseline concept instead of on cost or schedule baselines. The new metric not only provides information at the beginning of the project, but also while it is underway. Furthermore, the ARI is the only one to offer a normalized result: if we add its value for each activity, the total sum is 100%.